Publishers need to invest in new plant
He is the founder of Peter Klaue Media Consultancy in Hamburg, Germany, which provides strategic consulting and M&A advisory services for the publishing industry.
By Peter Klaue
One of the reasons U.S. newspapers are in a significantly worse spot than publishers in Europe appears to be that they failed to modernize their plants to improve their ability to print color and produce targeted local sections.
While most American newspapers operate plants that are 15 to 20 years old –the production equipment typically is half as old at publishing companies in Austria, Germany, the Netherlands, Scandinavia or Switzerland. State-of-the-art equipment not only enables full-color capabilities but also considerably trims production costs by enhancing running efficiency.
Limited color capacity in the U.S. not only makes newspapers less compelling to readers but also is a major negative factor for advertisers.
First, black-and-white advertising is not as captivating to readers as those printed in full color. Second, and perhaps most important, is that most U.S. newspapers continue charging advertisers huge premiums for the relatively limited number of color positions available in their pages.
Publishers justify the higher rates by saying it costs more to print color on their outmoded presses – as if customers were responsible for the industry’s lack of investment, instead of the other way around.
With the charge for a color ad in a U.S. paper often three or four times the cost of a black-and-white spot of the same size, American papers are challenging advertisers to spend money with them, instead of encouraging them to do so.
By contrast, papers in Europe take advantage of their modern plants to make color so widely available that color ads are far more common than black-only ones.
Because color is routinely available in Europe, newspapers typically don’t charge extra for color advertising but, rather, charge all advertisers the same rate. And that rate is considerably higher than the average rate charged in the United States.
The 15 largest newspapers published in Switzerland charge an average of US$42.90 per thousand readers, as compared with CPMs ranging from US$19 to US$25 in the United States. Thus, Dutch, German, Scandinavian or Swiss papers on average generate between 1.5 and 2 times more revenue per ad than their American counterparts.
Modern equipment also makes it possible to efficiently print the paper in more sections.
Where the typical European paper is printed in four or five sections (including at least one highly targeted local section), many U.S. publishers actually reduce the number of sections in their papers to shave paper costs and compensate for the inefficiency of their aged production lines.
At a time most commentators and publishers agree that local news is a top priority for U.S. papers, the trend toward eliminating sections is going in the wrong direction.
Local sections are not only popular with readers but also represent a major source of potential advertising. When outdated equipment makes it too expensive or all but impossible to print and distribute targeted local sections, newspapers lose a major opportunity.
Although U.S. papers are suffering through the worst revenue and profit declines in their long history, they may want consider reinvesting in their press facilities before it is too late.
One of the most successful publishers in the world has done just that. Rupert Murdoch invested nearly US$1.2 billion in new plants in the UK to significantly increase color capacity and output.
Where such investments are out of reach, publishers need to get together to thrive: News International’s plant in Broxbourne, UK, prints Telegraph Media Group’s flagship publication. Sweden’s V-TAB prints papers for half of the newsstand racks, in a country which, by size and density of population, offers challenges in distribution comparable to those in rural U.S. states.
Recent decisions in the U.S. heading in that direction include plans to outsource printing of the Boston Herald, Washington Times and Idaho Statesman. The San Francisco Chronicle has contracted with a commercial printing company to build a new plant and take over production, while its sister paper, the Albany (NY) Times-Union is building its own new plant.
Some publishers may argue that it already is too late to turn around their papers and will elect, unfortunately, to squeeze what’s left from their businesses and then liquidate them.
However, those who have not given up might take a close look at the newspapers that are seeking to consolidate printing operations in order to reduce costs while sharing the costs of modernizing their plants.
Such decisions will not come easily in the “squeeze and cut” mode that has gripped the U.S. newspaper industry. But this may be the time for publishers to take bold action.
As Mathias Döpfner, the Chief Executive Officer of Axel Springer and member of the Board of Directors of Time Warner Inc. said, “We should not commit suicide for fear of dying!”